Minister Meetings - A Commercial Diplomacy Approach for Small Open
States
How Danish Minister Meetings can Foster Business Opportunities in China
Bjørg Ilsø Klinkby
Copenhagen Business School
Master of Science in International Business and Politics Advisor: Yang Jiang
Second advisor: Stine Hakonsson Date: 1st May 2013
Number of taps: 178354
Abstract
Small open states are vulnerable to economic shifts, since these states often are depending on export. The use of bilateral minister meetings has become a common
approach to boost trade relations. It is therefore urgent to explore the dynamics of minister meetings as an approach, because this method has received limited attention
in academia.
Denmark struggles in times of rapid economic shifts and in search for growth Denmark has turned its eyes towards the Chinese market where growth rates are attractive. 2012 was characterized as a year with record high bilateral interaction at minister-level aimed to promote the opportunities of Danish businesses in China. This
master thesis will evaluate the Danish approach to China from a business point of view. The theoretical framework of commercial diplomacy will be used as a point of
reference to structure this thesis. A brief historical overview of bilateral interaction between China and Denmark will be provided, were it is argued that the commercial
relations of today still benefits from the history between the two countries An empirical analysis of the Danish-Chinese interaction in 2012 will be provided
through case studies of actions by individual ministers, based on interviews with actors in Danish commercial diplomacy to China. The case studies illustrate great variety of success in the ministers’ performance considering the different focus on
commercial relations the minister visits had. In general, Danish business had influence on the Danish authorities’ actions, but evidence suggests an unfair favoring
of some business actors.
The success of the collective Danish action is measured by the criteria: access, attitude, agenda, commercial aspects, long term value, open doors, push contracts, partner care, increased visibility, timing, preparation, coordination and cooperation.
The analysis of the collective action illustrates that the Danish approach have been upgraded in 2012, though the Danish commercial diplomacy to China still have some
weaknesses. At the moment Danish businesses are not fully benefitting from the
‘minister-meeting approach’: Lack of financial resources, unfair selection process and insufficient coordination are the most influential weaknesses in the current Danish
commercial diplomacy approach. Based on these findings suggestions for optimization are provided to improve Danish commercial diplomacy to China. The
long term value of minister meetings can when it is performed well increasing business potential for growth, which is necessary for the companies in small open
states like Denmark.
Keywords: Small open state; Denmark; Commercial Diplomacy; minister visits;
China; business potential; business interest; growth opportunities
Table of Contents
Abstract... 2
1. Growth Opportunities for a Small Open State ... 5
2. Conceptualizing Commercial Diplomacy ... 8
2.1. Definition of Commercial Diplomacy ... 8
2.2. Commercial Diplomacy as an Academic Field ... 9
2.3. Actors, Drivers & Shapers ... 10
2.4. Roles ... 11
2.5. Design of Commercial Diplomacy ... 12
2.6. Market Failure and Criticism of Commercial Diplomacy ... 13
2.7. Commercial Diplomacy and Other Policies ... 14
2.8. Minister Meetings as a Tool of Commercial Diplomacy... 14
3. Research Design, Method & Case Selection ... 14
3.1. Case selection: Denmark vs. China ... 15
3.2. Intentions and Perspective ... 16
3.3. Research Design... 16
3.4. Applied Resources ... 17
3.5. Case Studies and Interviews ... 18
3.6. Selection of Respondents... 19
3.7. Reliability & Validity of Interviews ... 20
3.8. Evaluation Criteria of Success ... 21
3.9. Implications ... 23
4. The History of Commercial Diplomatic Relations ... 23
4.1. Interactions & Developing Relations... 24
4.2. Normative Dilemmas in the Relationship... 25
4.3. Strategic Partnership ... 25
4.4. The Europe-China Relations... 25
4.5. Denmark versus China – Equal friends?... 27
5. Evaluation of the Danish Commercial Diplomacy to China... 28
5.1. Growth Market Strategy for China ... 28
5.2. Danish Officials in China ... 30
5.3. President Hu Jintao’s visit to Denmark ... 32
5.4. Meetings by Prime Minister Helle Thorning-Schmidt ... 37
5.5. Visit by former Minister of Business and Growth, Ole Sohn... 40
5.6. Meetings by Minister of Trade and Investment, Pia Olsen Dyhr ... 41
5.7. Meetings by the Minister for Environment, Ida Auken... 43
5.8. Meetings by the Minister for Food, Agriculture and Fisheries, Mette Gjerskov... 45
5.9. Royal visit ... 46
5.10. Meetings by the Danish Minister for Climate, Energy and Building, Martin Lidegaard ... 47
5.11. Meetings by Minister of Foreign Affairs, Villy Søvndal... 48
5.12. Other visits in 2012... 49
5.13. Comparative Analysis of Ministers’ Performance... 50
6. Assessment of the Collective Action ... 51
6.1. Access and Selection Process ... 52
6.2. Attitude towards Chinese Colleges... 55
6.3. Agenda - General Branding or Targeted?... 56
6.4. Commercial Aspects of Meetings... 57
6.5. Long term Value of Activities ... 58
6.6. Open Doors and Creation of Contacts ... 60
6.7. Push Contracts ... 62
6.8. Partnership care... 62
6.9. Increased Visibility ... 63
6.10 Timing... 64
6.11. Preparation & Analysis ... 65
6.12. Coordination between Actors ... 67
6.13. Cooperation between Business and Government ... 70
7. Optimization Initiatives & Future Scenarios ... 82
8. Conclusion ... 76
Bibliography ... 80
Appendix 1: Interview guide... 85
Appendix 2: Variables ... 86
Figure 1: The process of commercial diplomacy 8 Figure 2: Actors, shapers and drivers 9 Figure 3: Overview of research design 16
Figure 4, Timeline of highlights in the history of Danish-Chinese relations 23 Figure 5: Illustration of the complexity of actors on the EU side 25 Figure 6: Success versus activeness 50 Figure 7: Cooperation 69 Figure 8: Roles 71
Figure 9: Impact & resources 74 Figure 10: Scenarios 74 Table 1: Case studies 17 Table 2: Respondents 19 Table 3: Criteria of success of the government’s initiative 21 Table 4: Contributions 22 Table 5: Danish export compared to competitors 26 Table 6: Strategic sectors 27
Table 7: Location of Danish Officials in China 29 Table 8: Performance by the Danish officials 30 Table 9: Business participation 31 Table 10: Danish companies signing contracts 32 Table 11: MoUs relevant for business 33 Table 12: Performance during the presidential visit 36
Table 13: Participants 36 Table 14: Performance by the Prime Minister 38 Table 15: Performance by Minister of Business and Growth 39
Table 16: Joint Committee 40 Table 17: Performance by Minister of Trade and Investment 42
Table 18: Performance by Minister of Environment 43
Table 19: Participants 44 Table 20: Performance by Minister for Food, Agriculture and Fisheries 45
Table 21: Performance during the Royal visit 46 Table 22: Performance by Minister for Energy, Climate and Building 47
Table 23: Performance by Minister of Foreign Affairs 48 Table 24: Summery of ranking 49 Table 25: Guidelines for cultural codex 55 Table 26: Criteria for successful MoUs 59 Table 27: Initiatives for optimizing the approach 73 Graph 1: Total external trade 23 Graph 2: Development of export 24
Graph 3: Number of export companies 52 Graph 4: Value of export 52
1. Growth Opportunities for a Small Open State
The global economic crisis has changed the markets and national economies have become sensitive because of the markets interdependency. In particular the economies of small open states are exposed and the European market struggles to recover to its previous strengths. Katzenstein argued in 1985 that small open states are vulnerable to economic crisis in the world market. Small open states are dependent on import, since they lack capacity to be self-supplying and are challenged with reaching economies of scales (Kartzenstein, 1985). To secure stability and diminish shocks from economic crises, small open states must concentrate on certain products or services for export and hereby balance the currencies to diminish vulnerability (Katzenstein, 1985).
Decades after Katzenstein’s ideas were published, it appears that the world economy has become even more interdependent and the argument seems more evident than ever: approaches to stimulate growth through increased trade in small open states must be found immediately.
As a small open state the Danish economy1 is highly influenced by the fluctuating global demand. It is a hot topic in the Danish public debate, how Denmark can take action to adjust unemployment and competitiveness’ problems. In search for growth and job creation the Danish authorities has announced that growth markets will be a strategic priority.
Growth markets are in these years attractive: Especially Brazil, Russia, India and China2 (BRIC) have been highlighted as centers for growth opportunities to re- stabilize the global economy. China has been highlighted as the export market where Denmark has the highest potential to boost their economy. China is wildly contested in media, politics and business’: China is old and new, different and
overwhelming. China is a nightmare and a dream. China is overvalued and underestimated. It is the country of contradictions, and the mentality and political structure in China differs from Denmark’s traditional trading partners.
1 Denmark is one of the countries Katzenstein labels as a small open state.
2 The growth in China is expected to be the key to economic prosperity according to forecasts by e.g.
International Monetary Fund, Economist Intelligence Unit and the World Bank.
Commercial diplomacy is an instrument to generate jobs and economic growth and hence can be can be used as a framework for testing the Danish search for growth through trade with China. Academic conceptualization of commercial diplomacy is fractional, despite that there is an increasing interest for commercial diplomacy, which can be explained by a greater focus on national competitiveness (Kostecki and Naray, 2007; Ruël and Zuidema, 2012). There are gaps in the literature on
commercial diplomacy and this thesis will contribute with a study of bilateral
minister-meetings as a tool for commercial diplomacy and the role of business in this aspect.
There have been a record high number of minister meetings between Denmark and China in 2012 with the highlight of President of the Peoples Republic of China’s visit and the Danish Prime Minister’s re-visit. Support from the highest political level is essential for Danish companies when doing business in China because of the Chinese culture and embeddedness between politics and business in China. This makes it critical to address the following research question:
How does Denmark use commercial diplomacy towards the Peoples Republic of China and how can minister visits benefit Danish business growth opportunities?
In order to answer this research question it is necessary to address the following sub- questions:
• How do Danish ministers practice commercial diplomacy?
• How can meetings between Danish ministers and their Chinese colleges benefit Danish companies?
• How do the Danish authorities and business cooperate on commercial diplomacy?
• How can Danish commercial diplomacy to China be improved?
Firstly this thesis will conceptualize the theoretical framework of commercial diplomacy in order to create a point of reference. The theory of commercial diplomacy will be discussed throughout this thesis in order to relate the empirical evidence to previous studies.
Secondly the method will be outlined as well as presentation of the reasoning behind the selection of case studies, respondents, research design, and the implications of this
master thesis. Thus, this part will present the evaluation criteria for measuring the success of the Danish approach in order to make the judgement tangible.
Thirdly, an assessment of the history of Danish-Chinese commercial relations will be provided, since the historic roots continues to be an advantage for furthering the relationship of today.
Fourthly, the specific minister meetings will be analysed and based on interviews with key actors, the different ministers’ action will be evaluated. The analysis will explore the many ministerial meetings between Denmark and China this year - including the role of Danish businesses.
Fifthly, the collective actions by different ministers are of importance and the
individual meetings should be seen as a contribution to the collective action. This part will discuss the sums of the different minsters’ actions through considering different elements such as coordination and cooperation between stakeholders. It is argued that the initiatives in 2012 was a significant improvement of the Danish approach to China, though weaknesses like lack of coordination, limited resources and an unfair selection process have a negative impact on the success.
Sixthly, based on findings of weaknesses in the Danish approach, this part will suggest improvements to the current approach in order to make the Danish commercial diplomacy approach more beneficial for business.
Finally, it be will concluded that the Danish commercial diplomacy is based on close bilateral cooperation between ministers aimed at creating businesses’ opportunities for increasing the trade. Nevertheless the full effects on action in 2012 are still to be seen and it is urgent to improve the Danish commercial diplomacy approach to increase likeliness of creating increased trade between China and Denmark.
2. Conceptualizing Commercial Diplomacy
This part will present the theoretical framework of commercial diplomacy including the overall aims and benefits. The part will discuss the practice versus academic literature on commercial diplomacy and it will be argued that minister visits, as an approach for commercial diplomacy, deserve attention in academia. The
conceptualization of commercial diplomacy creates a framework for this thesis.
2.1. Definition of Commercial Diplomacy
Diplomatic missions3 have long been used as a tool to improve relations to other states (Berridge, 2002). Commercial diplomatic activities can be dated back to the Roman Empire (Naray, 2008). Today, commercial diplomacy4 activities, is a common behavior by developed countries5 (see Kostecki and Naray, 2007). There is an
increasing focus on commercial diplomacy, which can be related to the global economic stagnation and the decreasing growth many countries experience
domestically (Justinek, 2012). In some countries, commercial diplomacy has become a core part of the overall diplomatic corps6.
A universal definition of commercial diplomacy remains absent (Stadman and Ruël, 2012). Scholars include different aspects in their definition and commercial
diplomacy is often confused with other activities such as export promotion, economic diplomacy7, and trade diplomacy. Commercial diplomacy is an instrument to utilize economic goals (Kopp, 2012). Commercial diplomacy includes among others trade promotion, investment promotion, business advocacy, and tourism promotion (Kostecki and Naray, 2007). Thus Commercial diplomacy is a two-way cooperation between the government and business on the national interest and it functions best
3 Diplomacy comes in many shapes and sizes; economic diplomacy; trade diplomacy; multilateral diplomacy, cultural diplomacy; crisis diplomacy; public diplomacy etc. (Berridge, 2002). Today it is the Vienna Convention on Diplomatic Relations that creates the treaty framework on diplomatic relations as the established practice and regulation of diplomatic missions (United Nations, Vienna Convention on Diplomatic Relations, 1961).
4 Commercial diplomacy is acknowledged by the United Nations Conference on Trade and Development (UNCTD) with a branch targeted to commercial diplomacy (UNCTD webpage).
5 Commercial diplomacy is valuable when targeting developing countries (Bondarouk and Ruël, 2012).
6 The United States prioritizes commercial diplomacy with training of Ambassadors (Kopp, 2004).
Although countries do not mention commercial diplomacy it does not mean that they do not practice it.
7 Commercial diplomacy has some similarity to economic diplomacy (Kostecki and Naray, 2007;
2012, Potter, 2004).
when the dialogue is ongoing and open (Kopp, 2004). The aim of commercial diplomacy is to:
“encouraging bilateral business through a series of roles that commercial diplomats perform in various activity areas, such as trade promotion, investment promotion, and
cooperation on science and technology”
Naray, 2011:122
Effective successful
commercial diplomacy is in national interest of states because it creates jobs and economic growth both through increased oversea trade and increased inbound investments (Kopp, 2004; Reuvers and Rüel, 2012). See figure 1, which illustrates the process of commercial diplomacy.
For the purpose of this master thesis is the following definition formulated:
Commercial diplomacy is action performed by governments, which are conducted to facilitate increased trade.
2.2. Commercial Diplomacy as an Academic Field
The framework of commercial diplomacy builds upon various academic fields such as political science, business management, marketing, international relations and
political economy. Though commercial diplomacy has gained increasing prominence, the state of the art of commercial diplomacy is neglected as it is only given attention by a few scholars (see Kostecki and Naray, 2007, Potter, 2004).
A literature review of commercial diplomacy conducted by Reuvers and Rüel (2012) found that only 13 publications on commercial diplomacy had been published since 1992, but it should be recognized that other concepts cover similar themes. The starting point for research on commercial diplomacy is often interviews with
stakeholders such as diplomats and business representatives (Naray, 2012; Zuidema and Ruël, 2012).
Job creation and domestic
growth
Public welfare to the benefit of the society
Political focus and strategic
policies Commercial
diplomacy Export
promotion, bilateral meetings and
agreements
Benefit to business/ increase
export or trade
Figure 1: The process of commercial diplomacy
2.3. Actors, Drivers & Shapers
There are many actors involved in commercial diplomacy activities and interaction takes place in a network of multiple stakeholders8:
“The spectrum of actors ranges from (i) the high-policy level (head of state, prime minister, minister or a member of parliament) to (ii) ambassador and the lower level
of specialized diplomatic envoy”.
Naray, 2012: 152 The studies of commercial diplomacy tend to focus on the activities of commercial diplomacy that can be carried out by staff in the diplomatic services from various levels in the organizational hierarchy (Naray, 2008; Visser and Ruël, 2012). There are a number of reasons why commercial diplomats are advantageous9: they can create visibility as it may provide greater media attention, open access to decision makers;
‘creditability’, ‘economies of scale’ for SMEs, economic sponsorship of promotion (Kostecki and Naray, 2007: 17-18).
Besides commercial diplomats other actors should be considered as a part of a nation’s
commercial diplomatic activities, meaning actors such as trade-promotion organisations, chambers of commerce, other trade-support institutions and specialized firms (Naray, 2008;
Kostecki and Naray, 2007; Kopp, 2004).
See figure 2, which illustrates actors, shapers and drivers.
8 In this research study actors of commercial diplomacy are expanded to cover ministers and other officials engaged with objectives of commercial diplomacy, where especially the role of the head of state, prime minister and ministers are considered.
9 Commercial aspects of foreign policy are somehow considered to be of less prestige, which
potentially makes it more difficult to attract talented people when also considering the competition on talent with the private sector (Naray, 2011). There is a disagreement on which talent is most favourable for commercial diplomats and which working background is most suitable (Naray, 2008; Naray, 2010).
In some countries a carrier with shifts between business and diplomacy is considered positive
(Kostecki and Naray, 2007). However, some studies question this statement in terms of whether carrier shifts actually provides extra competencies (Ruël and Zuidema, 2012).
Actors, drivers and shapers
Diplomats
Politicians
Interest organisations Business
Public opinion Muncipals
and local countries
Figure 2: Actors, shapers and drivers
2.4. Roles
Commercial diplomats have many roles both proactive and reactive. Proactive steps include help with potential sales, promotion in general. Reactive initiatives can be problem solving in host countries. Potter (2004)10 has divided activities between:
a) Broader-in, which is preparation of business outside the national border b) Broader-out, which is market development in foreign countries
Previous studies have made other distinctions, as roles of commercial diplomats can be characterized into facilitation, advisory and representation (Naray; 2011: 134).
The first, facilitation, covers coordination and other services such as matching contacts. The second, advisory, includes intelligence analysis, supervision, internal communication, reporting and monitoring (Naray, 2011:137). The third,
representation, focuses on external outreach including advocacy and awareness promotion (Naray 2011: 138). If companies tend to hesitate to share information then commercial diplomats can be neutral and facilitate experience of best practice of establishment in host-country (Busschers and Ruël, 2012). Though this will depend on willingness to share knowledge among companies in home country.
Together with Kostecki, Naray has categorized three types of commercial diplomats:
a) business promoter, b) civil servant and c) generalist (2007:21). The business promoter is according to their definition the one who understands business and the one who is most positively characterized as pro-active, client-oriented and successful.
The civil servant is passive and devoted to the ministry with remoteness to businesses.
The generalist is not assigned to commercial diplomacy but may function as such when necessary as it is the case with ambassadors.
It has previously been verified that commercial diplomacy is beneficial for business (Kostecki and Naray, 2007; Ruël and Zuidema, 2012). From a business perspective commercial diplomacy ought to increase companies’ revenues (Naray, 2012). It can be complex adapt to business interests since companies’ demand depend on size, set- up in host-country, sector and firm-specific needs. It is interesting that business uses commercial diplomats because of the reputation that they are credible and neutral
10 This division is very similar to Naray’s (2012) recent rough characteristic of either activities of promotion of home country or activities in interest of a specific firm (see p. 155).
(Naray, 2012)11. In terms of initiatives to contact, it may both be the business client who requests the assistance of the commercial diplomats or the commercial diplomat who contacts the business client (Naray, 2012).
2.5. Design of Commercial Diplomacy
A nation’s commercial diplomacy will vary from country to country as it is depending on characteristics of the home and the host country (Stadman and Ruël, 2012). There is no such thing as one single best practice that will suit all states. Instead states should create a design of commercial diplomacy, which fits national interest and the nature of the host country. The home country will in its strategy for commercial diplomacy focus on sectors where this match is present. Furthermore commercial diplomacy must consider the culture, business environment, the demand and other important characteristics of the host country in order to generate successful
commercial diplomacy. Both informal and formal institutional settings in a country are important (Visser and Ruël, 2012). The design of commercial diplomacy can be targeted to be ‘nation branding’ meaning that the reputation of the nation’s business competencies is promoted (Reuvers and Rüel, 2012).
Ruël and Zuidema note in their survey that the success of commercial diplomacy depends on the quality (2012). The quality is determined by variables such as the institutional environment of the host country and diplomats’ embeddedness with the business environment at their foreign post (Ruël and Zuidema, 2012). In addition it was found that success of commercial diplomacy in addition depends upon the
business clients’ ability to act and request specific demand (Ruël and Zuidema, 2012).
Kostecki and Naray call for more measurement on the effectiveness of commercial diplomacy as well as evaluation (2007). It has been debated whether the effects of commercial diplomacy are overrated12. Justinek (2012) has provided an alternative method to measure effects of commercial diplomatic activities, this method however is strictly focused on performance of foreign posts. One of the respondents of Naray’s study suggests that measures of success of commercial diplomacy also can be
11 According to this study, business representative expect equal treatment by the diplomats.
12 Ruël and Zuidema (2012) suggest that commercial diplomacy should concentrate on general promotion rather than on single companies, as it is this function commercial diplomats are best to perform. Please note that Rüel and Zuidma’s survey (2012) is based only on Dutch commercial diplomacy and it is therefore questionable whether this applies in general for all countries.
indicated by feed-back from clients, reputation and how many companies there use the services, as well as the revenue13 generated by performing commercial diplomacy (Naray, 2012: 157). This means that if an embassy has been able to attract an
increasing number of clients or get an increasing number of tasks by clients, it indicates satisfaction by clients and successful performance.
2.6. Market Failure and Criticism of Commercial Diplomacy
Commercial diplomacy benefits private companies by allocating financial and human resources from the public sector (Yakop and Bergeijk, 2009). The logic behind commercial diplomacy can be questioned because the main assumption behind capitalism and liberal markets is that companies should be able to trade without government interruption (Yakop and Bergeijk, 2009). The necessity to introduce and practice commercial diplomacy can thus be characterized as a ‘market failure’ (Yakop and Bergeijk, 2009). It can be argued that in a globalized world, commercial
diplomacy can contribute to overcome trade barriers through diplomatic relationship building between states (Reuvers and Rüel, 2012). Commercial diplomacy is typically labelled as a greater public good, which can strengthen the domestic economy.
The criticisms of commercial diplomats include lack of business understanding, lack of commercial priority, communication problems, ineffectiveness of bureaucracy and corruption (Kostecki and Naray, 2007:17). Evidence suggests that there exists a gap between practice and expectations and that there are reasons for improving the practice. A recent study by Naray (2012) supports these findings and adds that business also fear that commercial diplomats are not committed to business success and that the process is too slow and inefficient. Research has exposed that business frequent considers commercial diplomacy as dissatisfying as it lacks client-orientation (Kostecki and Naray, 2007: 27). There is a mismatch between what business desires and what commercial diplomacy provides, but on the contra diplomats have pointed out that business often have unrealistic expectations. SMEs seem to depend more on commercial diplomacy, as SMEs simply lack the resources to create extensive market research (Justinek, 2012)14.
13 Many embassies thus charge a fee for services (Naray, 2012).
14 Expertise and advisory service of the diplomatic commercial corps is therefore crucial in planning the export. SMEs’ budget on commercial marketing and promotion are limited (Justinek, 2012). SMEs
2.7. Commercial Diplomacy and Other Policies
Commercial diplomacy can serve a national security purpose as trade stabilizes security threats because trade partners are less likely to enter war (Kopp, 2004).
Despite the fact that commercial diplomacy focuses on trade relations it is important to emphasize the security agenda in utilizing commercial diplomacy, as it is largely acknowledged that trade partners avoid violent conflicts (Kopp, 2004). In addition commercial diplomacy and trade relations in general can widely contribute to create opportunities to discuss political controversial topics. Countries sometimes apply sanctions as a mean to achieve its national interest and this can also be considered as a part of commercial diplomacy (Kopp, 2004).
2.8. Minister Meetings as a Tool of Commercial Diplomacy
In general the rule is that the higher ranking within the commercial diplomatic corps the better is the chance for success (Kostecki and Naray, 2007: 10). The theoretical work on commercial diplomacy tends to neglect ministers’ roles and contributions to commercial diplomacy. This is striking as ministers and especially state leaders seem to play a vital role in the practice of commercial diplomacy. In addition the
cooperation on commercial diplomacy is only analyzed between diplomatic corps and business, where as businesses’ interaction with ministers and the use of business delegations is not analyzed or only very limited.
Evidence from research indicates that state visits have most influence on the export because state visits can upgrade and improve relations (Nitsch, 2007; Kopp, 2004).
Business delegations are frequently participating in states visits and economic cooperation is often center for bilateral talks. Research has confirmed that state visit accompanying by business delegations have a positive effect on trade (Nitsch, 2007).
This part has conceptualized commercial diplomacy in order to use it as a framework for further analysis of the Danish efforts to increase trade to China. The concepts from commercial diplomacy create the foundation for choices of the methodology and the variables on which the success of Danish commercial diplomacy will be measured.
The next part will present the choices of structuring the analysis.
simply have less experience with the actual performance of activities, but it also raises an important dilemma of the selection criteria of companies (Justinek, 2012).
3. Research Design, Method & Case Selection
Based on inspiration of previous studies of commercial diplomacy this part will outline the research design, method and considerations behind the choices. First a justification of case selection will be provided.
3.1. Case selection: Denmark vs. China
The reasoning behind choosing Denmark, as a represent of a small open economy is much influenced by my own nationality, and thereby my knowledge on the current debate and the national structure. Furthermore Denmark is as special case, since the country with a population around 5.5 million is a rather small actor in the global economy. Denmark is, together with its Scandinavian neighbours, recognized for its unique level of welfare services and its high GDP per capita makes its population one of the most wealthiest in the EU and worldwide. Competitiveness has decreased during the last years (OECD, 2012). Thus, Denmark is dependent on export, which accounts for around 50 percent of GDP. Denmark has lost more than 200.000
production jobs in the last years and this means that there exists a national search for generating growth and employment through new means. According to Katzenstein (1985) a small state’s ability to adjust to economic changes will determine its success to remain competitive in order to survive in the world market. Through tuning
policies to the rapid changes at the world markets small states could secure stability domestically (Katzenstein, 1985). These factors together make it interesting to choose Denmark as the case country.
Furthermore Denmark’s actions towards China have been chosen, since the Danish government, as mentioned in the introduction, has labelled China the most prosperous export destination. Denmark uses many resources to reach its goal of increasing trade with China – both time, and financial and human resources. In addition China is a special case, as China differs from Denmark’s normal trading partners in terms of political system and culture.
The choice of focusing on the actions in 2012 is founded in a paradigm shift in the Danish action towards China. The Danish behavior radically changed to take
proactive initiatives15. First of all, a new Danish government was elected in 2011, which means that new ministers are interacting with Chinese counter partners.
Second, the Danish government has launched a new strategy towards China and this makes it relevant to evaluate the action, changes, effects and success. Third, the year 2012 marks a historic high level of bilateral interactions between the countries and with the visit by the Chinese President in 2012 it is interesting to consider whether Denmark toke advantage of this opportunity. To look narrowly on 2012 have some limitations since the efforts of 2012 do not stand alone, but rather builds on previous efforts. At the same time one year of proactive initiatives does not change the
relationship unless it is continued in the years to come. To look strictly at 2012 also limits the number of possible case studies and neglect the bigger picture of
development of the diplomatic relations.
3.2. Intentions and Perspective
The intention of this master thesis is to explore the current reality of Danish
commercial diplomacy to China, taking an inductive approach. The intention is not to make predictions of further development, although scenarios for adjusting the actions will be made. From the beginning the assumptions was that the actions by Denmark would have a positive effect on trade with China and at the same time that there would be points of criticism in the current approach. As a student of both international business and politics I am biased. First of all, I consider economic interest as a logical high priority in states interactions. Thus, national policies should consider the interest of business, as this will benefit the national interest of generating growth and
employment. Though it is important to balance the economic interest with other interests. To discuss politics should be a top priority in the Danish relationship with China, but I have chosen to focus on the commercial and economic relations since this field tends to be neglected. I have chosen to focus on Danish perspectives on the relations to China since it would be to comprehensive to include the Chinese interest.
3.3. Research Design
The research designs is structured as an explorative study in order to build and conduct a theoretical understanding (Yin, 2003). Rather than simply describing the
15 According to Justinek (2012) increased focus on commercial diplomacy activities can be explained by a pressure on the domestic market, as it is the case in Denmark.
pattern, the desire is to explore new meanings. The inductive approach meant that the research design was changed during the research process. See figure 3 for an
overview of the research design.
A historic overview of the development of the relationship will be presented as the long term historic roots still are important for the degree of closeness in the current relationship. In addition EU-China relations will be presented as it has great
importance for Denmark’s relations to China.
This will be followed by comprehensive analysis of meetings between Danish and Chinese ministers. Since, the function of the Danish officials in China also is to contribution to the interaction. Thus, this will lead to a discussion and evaluation of the collective activities.
Suggestions to improvement to the current approach will be provided including scenarios for impact of the suggested actions and discussion of implications for implementation.
Finally, it will be concluded that the Danish commercial diplomacy has influenced Danish business opportunities for increasing trade with China but at the same time, the Danish commercial diplomacy has weaknesses, which needs to be discussed urgently by the stakeholders.
3.4. Applied Resources
Multiple research sources are applied including articles in the press, official
statements and documents, statistic evidence from official institutions’ data-sets. This data is naturally not produced for the purpose of this study, however in the case of official statements in the media it is very useful to consider how for instance Chinese national media covers the Danish-Chinese relations. Much of the data covered in this research comes from topics and news, which I had come across previously. Research searches were mainly to cover the latest development from a business perspective through searches at various databases to find relevant information on exact meetings.
Introduction Commercial
diplomacy Methodology Historical
context Individual
cases Collected
action Suggested
initiatives Conclusion
Figure 3: Overview of research design
In addition reviews of the ministers’ agenda for visits to China has been an important source as well as unofficial information from various actors.
3.5. Case Studies and Interviews
The empirical research of this master thesis is mainly based upon multiple case studies of the Danish activities16 where qualitative interviews were conducted with various stakeholders. In total ten case studies are provided, which are listed in the table 1.
The interviews were in-dept semi-structured interviews with stakeholders both face-to-face and telephone interviews as many previous
research studies on commercial diplomacy also have applied. Face-to-face interviews were preferred, but since a number of the respondents were based in China it was only applicable to make telephone interviews. In addition were telephone interviews most feasible in a number of cases where the respondents were based in Denmark, because of the respondents’ busy schedule. Although face-to-face was preferred the
experience in reality was that the respondents were still open to provide information over the phone. The semi-structured interviews gave the possibility to focus on the interviewee’s perspective and experience (Saunders et al., 2007). The semi-structured interview made it feasible to explore the most interesting parts of the respondents’
responses for further explanation. It allowed open questions and complexity, where it was possible to construct the interview around the themes and elements of which the respondent had most experience. The questions departed in relevant events where the respondent had participated. The semi-structured interview made an exploratory study possible, where the focus was on the interviewee’s experience and opinion. Using interviews or more precisely qualitative research can generate new knowledge in a structured process (Kvale, 1998). As the interviewer it was important to take on a neutral role and use intuition to direct the interviewee to reflect on relevant matters.
16 The Royal visit by the Crown Prince and the Crown Princes is included because this visit also was an official visit by the Danish state and since visits by the royal family has same character as minister visits with a great focus on commercial relations.
Table 1: Case studies
1. Danish Officials in China
2. President Hu Jintao’s visit to Denmark 3. Meetings by Prime Minister Helle Thorning-
Schmidt
4. Visit by former Minister of Business and Growth, Ole Sohn
5. Meetings by Minister of Trade and Investment, Pia Olsen Dyhr
6. Meetings by the Minister for Environment, Ida Auken
7. Meetings by the Minister for Food, Agriculture and Fisheries, Mette Gjerskov 8. Royal visit by the Crown Prince and the
Crown Princess
9. Meetings by the Minister for Climate, Energy and Building, Martin Lidegaard 10. Meetings by the Minister of Foreign Affairs
Villy Søvndal
Before each interview was a small briefing about the project provided to the interviewee. The questions were framed openly in order to make the interviewee reflect on relevant issues. In preparation for the interviews the work of Kvale (1998) were used for inspiration and as a checklist for reflection on the design. The interview guide has been gradually adjusted after experience with interviews (see the interview guide in appendix 1). The interview guide toke consideration of different engagement and questions were in practice asked as open as possible in order to make the
interviewees reply with what they found most relevant. Comprehensive preparation before each interview was conducted to understand the interviewee’s organization’s operation in China and involvement in the meetings of 2012. The interviews were conducted in the period November 2012 to February 2013.
3.6. Selection of Respondents
A basic criterion was that the respondent had been involved in some of the interaction in 2012 and throughout a screening process a number of actors from business and the government were selected. It was necessary to select companies with knowledge on the events despite that this might make the ‘picture’ of the Danish commercial diplomacy seem more positive and inclusive. A variation of degree of involvement was therefore prioritized in order to include cases of exclusion from events. Many of the chosen companies are in Danish key competitive industries and these are being central in the Danish promotion of business to China and to export markets in general.
Nevertheless the choice of these companies makes it questionable whether
generalization can be made based on the qualitative data as the perspectives of these large companies perspective have varieties compared to SMEs17. Giving voice to the business interest organizations helped overcome this limitation as they represent a larger sample of companies and thus have participated in many of the events in 2012.
17 SMEs face different challenges compared to larger companies since they often has fewer resources both in terms of employees and capital, and SMEs might have less experience with export. It must therefore be assumed that SMEs and large companies to some extend will have different interests.
The aim was to interview senior people from organizations because it was expected that these would be willing to reflect on the government’s role when the interviews were not disclosed. The choice of senior people as interviewee ensured that
interviewee had first-hand experience.
3.7. Reliability & Validity of Interviews
The choice of non-disclosure was based on the fact that themes in the interview did not cover sensitive information and business secrets. Nevertheless it may have limited the openness of their responses but because of the relevance of the research topic, non-disclosure was prioritized. Many of the respondents expressed a great caution for citations and references and despite the trust building during the interviews it must be assumed that the respondents to some extend have modified their statements. The concern was statements that could offend business partners or influence business
Respondents Table 2: Respondents
State actors Danish Ministry of Foreign
Affairs
The Export Council under the Ministry of Foreign Affairs serves the Danish Minister of Trade and Investment
Embassy of Denmark in China The Embassy’s work are related to trade and support to companies.
Embassy of the People’s Republic of China in Denmark
The Economic department facilitates trade related issues and has a clear focus on bilateral commercial relations.
Business
Grundfos Turnover in 2011 on 2,841 mill. €, a leading world manufacture of pumps (Grundfos webpage). China as a second home market.
Foss Turnover 214 mill. € in 2011 (FOSS webpage). Provides analytical solutions to e.g. milk production. Focus in China on food security.
Novozymes Biotech company with focus on enzyme production. Turnover DKK 11,234 mill. in 2012 (Novozymes webpage). Strong presents in China.
Maersk Group Revenue on $ 60.2 bill. in 2011 (Maersk Group webpage). Consists of many companies within the oil and gas and the shipping industry.
Vestas Turnover in 2011 on € 5,836 mill., one of the leading companies in the windmill industry (Vestas webpage). Chinese market is very important.
Rockwool A global leading isolation company with a turnover DKK 13,748 mill. in 2011 (Rockwool webpage). The Chinese market is a strategic focus.
Flügger Turnover 1,760 mill. DKK 2011/2012. Flügger sells decorative painting and related products (Flügger webpage). China is an important market.
Danfoss Turnover in 2011 € 4,550 mill. (Danfoss webpage). Portfolio: e.g.
refrigeration and air conditioning. China as a second home market.
House of Amber Has managed to expand rapidly in China, by benefiting from the Chinese customers interest in amber and the increasing wealth.
Interest organizations Confederation of Danish
Industry (DI)
With more than 10,000 member companies is DI a major interest organization in Denmark.
Danish Chamber of Commerce (Dansk Erhverv)
Focus is on commerce, advisory, knowledge, experience, welfare and transport industries and the organization has 17,000 member companies.
Danish-Chinese Business Forum
Focus specific on business between Denmark and China, and the organization has more than 160 member companies.
Danish Chamber of Commerce China
DCCC has branches located in Beijing, Shanghai and South China.
Danish Agriculture and Food Council
Focus on farming and agriculture industry. More than 160 member companies, as well as a number of organizations and associations.
opportunities negatively. The respondents were however interested in contributing to more knowledge on scope of this and many of them expressed an interest in the results and it must therefore also be assumed that it is in their interest to contribute to a realistic picture. Nevertheless the respondents must be assumed to have their own interest to protect such as being on good terms with the Danish authorities in order to be selected to future visits. Although most of the respondents were realistic about the fact that the authorities needed to balance different interests, the respondents’ natural desire was to benefit as much as possible from supportive initiatives. Similar the official representatives were interested in creating a positive image and illustrate their own success. A clear limitation was the time amount to conduct the interviews as more time for each interview would have been desirable but because of the busy schedule of the respondents it would have been impossible to organize longer
interviews. It was the experience that the respondents were aware of their opinion and it was therefore possible to talk about the most relevant aspects within the time frame.
3.8. Evaluation Criteria of Success
Although the success of commercial diplomacy is difficult to measure, this thesis will evaluate the commercial diplomacy of Denmark based on a number of variables. The full effects of the Danish approach will first be possible to observe in the years to come because it takes time to negotiate contracts with Chinese partners. However, this study will evaluate the success of the Danish commercial diplomacy from a business perspective.
The variables are based on a literature review of commercial diplomacy, but also considering that the interviewees characterized as important. For the individual case studies of ministers’ performance is both a number of explanatory variables and dependent variables applied (see table 3).
Both explanatory and dependent variables will be used as well as additional
explanatory variables in the evaluation of the collective action by ministers will (see table 3). The additional explanatory variables were difficult to include in the
individual case studies because of scarcity of information or that the variable was related to the collective action and not individual cases. This thesis will not include a regression analysis because of the limited number of cases though the causality
between explanatory and dependent variables will be briefly included. Table 3 outline the criteria used to measure success of the Danish commercial diplomacy (see also appendix 2).
Table 3: Criteria of success of the government’s initiative Explanatory variables of individual cases
Access The choice of access to meetings and visits How open are the authorities to include business? Are companies allowed to participate in the visit? And what kind of companies is invited? Is it for many or for a few there are chosen to participate?
Attitude The attitude by the Danish represent towards China is important for the success and the ability to establish good relations: How does the minister in general act towards China? Are there good personal relations to the Chinese minister? Is the relation respectful?
Agenda The agenda must be relevant in order for business to be valuable. Shortly, do the companies find the agenda relevant and meaningful? Is the agenda broad branding or targeted at specific projects and themes? Do the minister meet with the right people?
Commercial aspects
The degree of commercial aspects influence successful: Does the meeting include commercial aspects? Is a business delegation participating or are companies included otherwise? Is the minister willing to focus on commercial aspects?
Dependent variables of individual cases Long-term
value
The success can be short-term wins, or it can be long term value creating: does companies find the activities meaningful and can they see a long term value. Will it generate revenue?
Open doors Some visits open new doors: does the visit help with door opening and have the companies a possibility to meet new network contacts. Is the visit/meeting organized so that proper matchmaking between relevant Chinese partners and Danish partners is possible?
Push orders/
contracts
Some visits include signing of contracts and the role of the minister is important to consider:
does the visit contribute to the finalization of contacts?
Partner care The companies favour value-adding activities for their partners: can the companies use visits to maintain good relations? Can the companies’ partners participate in events?
Explanatory variables of collective action Increased
visibility
Media attention is also a variable: can the companies brand themselves? Does the visit attract media attention and is the companies benefitting from this?
Timing The timing of visits is of importance: is the timing useful for the companies? Is the notification sufficient?
Preparation The preparedness of visits is of importance: are the companies perusing the meeting as well prepared? Is the minister sufficiently prepared for the visit?
Coordination Overall coordination can secure a coherent action plan, so that the companies have a chance to make value from visits: is the visits thought of as single visits or a part of a collective action? How does the overall coordination of the meetings pace fit with this meeting?
Cooperation The cooperation between Danish authorities, companies and interest organisation is
essential: how is cooperation functioning? Is the minister and ministries including business?
For the individual case evaluation each of the first variables will be ranked by limited, medium or great, based on the findings in interviews and research since the ranking was intended to be as neutral as possible. However it will still be biased to some extent as the respondents and the applied resources will be biased. Ranking through only three categories gives limited varieties but it illustrates a pattern. The entire criteria-set will be applied in an assessment of the effects of interactions.
3.9. Implications
This master thesis contributes to a better understanding of the practice of commercial diplomacy of a small open state, the potential benefit for business and the economy in the long term. It contributes to an understanding of which factors there are of
importance and how commercial diplomacy can be successful to realise the aim for increased trade. It contributes to the current debate and search in Denmark for future growth with concrete recommendations to how Denmark’s commercial diplomacy can be improved. Furthermore this thesis will contribute to new academic knowledge of the impact of ministers’ action in commercial diplomacy and how business is involved in minister meetings, which of the importance of minister meetings as an approach in practice. In addition it contributes to an understanding of how one
country can practice commercial diplomacy with another country, very different from the traditional trading partners, and which implications these differences have for the business. Though it is only possible to a limited extent to generalise since commercial diplomacy is based on special characteristics of the home and host country.
This means that the master thesis is highly relevant for Danish companies and
government, for small open states in general, commercial diplomacy as an academic field, and for countries in general who are
interacting with countries, which are very different from normal trading partners.
Table 4: Contributions
• Academic knowledge on minister meetings as a part of commercial diplomacy
• Small open state’s commercial diplomacy
• Different characteristics of home and host country and the impact on commercial diplomacy
• The Danish approach to China
• Interaction between business and government and participation in delegation
Graph 1: Total external trade
4. The History of Commercial Diplomatic Relations
This paragraph presents the history of Danish-Chinese commercial relations in order to understand dynamics, balance and interests. The EU’s relation to China will be presented because of its influence on the Danish relations to China.
4.1. Interactions & Developing Relations
The history of trade relations between Denmark and China dates back to the 17.
Century18(Brødsgaard, 2010; Østergaard, 2011). Denmark was among the first western countries to recognize the People’s Republic of China after its establishment, which has resulted in a favorable Chinese attitude towards Denmark (Brødsgaard, 2010; Shambaugh et al., 2008). The Danish Prime Minister Poul Hartling visited China in 1974 and became one of the first political leaders to meet Chairman Mao (Brødsgaard et al., 2000). Since have Danish ministers and the Royal Family visited China, including the Danish Queen in 1979 (Denmark in China, 2012a). The good relationship to Denmark benefitted China when contact with Europe was initiated the same year (Brødsgaard, 2010; Østergaard, 2011). See figure 4 for an overview of highlights.
Commercial relations have been center for many of the bilateral meetings between Danish and Chinese ministers19 (Thøgersen, 2012). Graph 1 shows the export since 1988.
18 The flows of trade were one-way, with Chinese products sold in Denmark. Denmark sent diplomatic missions to China during the 19. Century (Brødsgaard et al., 2000). Chinese products were more sophisticated than European and China had no interest in European products (Shambaugh et al., 2008).
19 For instance, Minister of Foreign Affairs, Uffe Elleman visited in 1985 with a large business delegation (Brødsgaard et al., 2000).
Graph 2: development of export
4.2. Normative Dilemmas in the Relationship
The Danish public opinion on China has influenced the authorities’ attitude towards China (Østergaard, 2011), and the Danish-Chinese relationship has been challenged a number of times. Denmark froze the relationship after the violations on Tiananmen Square in 1989 and it took years to ease the tension (Brødsgaard, 2010; Østergaard, 2011). Danish criticism of China’s human rights records in a UN committee in 1997 resulted in China cancelling of cabinet ministers’ visits (Østergaard, 2011;
Brødsgaard, 2010). The Danish Prime Minister Lars Løkke Rasmussen’s ‘private’
meeting with Dalai Lama at Prime Minister’s official residence made the Chinese cancel meetings, which damaged Danish business20 (Brødsgaard, 2010; Østergaard, 2011). The government has to balance between a Danish public pressure to discuss human rights and then the high economic risk of offending China (Østergaard, 2011).
4.3. Strategic Partnership
Danish-Chinese relations were upgraded under the Danish Prime Minister Anders Fogh Rasmussen with the establishment of a mutual beneficial partnership in 2008.
Premier to the State Council Wen Jibao signed from the Chinese side and both sides expressed a wish of a strengthened relationship (Joint Statement, 2008). Commercial cooperation is part of the focus in the
mutual beneficial partnership agreement besides enhancing political dialogue and a number of other focus areas (Ministry of Foreign Affairs Denmark, 2008).
Denmark is only one of few countries in Europe with such an agreement. The graph 2 shows the development in the Danish export21 to China.
4.4. The Europe-China Relations
The bilateral relationship between Denmark and China is dependent on EU-China relations. Milestones in EU-China relations were the bilateral agreement established in 1978 between the European Community and China, and the Trade and Economic
20 Previous Prime ministers had met with Dalai Lama without a big diplomatic crisis.
21 The decrease in 2010 indicates the crisis after the Prime Minister’s meeting with Dalai Lama.
Cooperation Agreement established in 1985 (Strange et al., 1998; Shambaugh et al., 2008). Since China’s membership in of the World Trade Organization in 2001, trade between the EU and China has expanded rapidly22. The EU and China have since 200623 negotiated about a Partnership and Cooperation Agreement (PCA). The EU- China comprehensive strategic partnership was initiated in 2003 and a new strategic partnership negotiation was launched in 2007 (EU-China Summit, Factsheet, 2012).
Multiplied parallel tracks of interaction with China are observable; representatives from EU institutions including representatives from the European External Action Services (EEAS) and cabinet officials from the Commission, and similar have the 27- member states interaction. Figure 5 illustrates the dilemma:
It is striking that the member states consider their unilateral action as efficient since they will be a smaller player than China in negotiations. Denmark has been
encouraging a more united EU position (Thorning: Europa skal holde sammen mod Kina, 2012).
22 China ranks the EU as its most greatest import partner, the second largest export partner, and in total the second largest trading partner - EU27 is China’s second largest import partner, the largest export partner, and in total the most important trading partner (EC Webpage, China, Statistics).
23 China pressures for the EU to recognize China as a ‘market economy’ (China seeks high-tech weapons, 'respect' on EU visit, 2012). China and EU have complained about the other part’s
protectionist barriers (China accuses EU of political games on trade, 2011). The economic turbulence in Europe has had a negative effect on China (China central banker: EU is our biggest uncertainty, 2012). China is involved in the EU’s debt crisis by buying bail-out bonds and investing massively in European markets (EU sees dramatic surge in investment from China, 2012). EU and China have since 2008 had a High Level Economic and Trade Dialogue (HED) (EC Webpage, Trade, China).
China
EEAS Commission
Council Parliament
Member state
Member state
Member
state Member state
Member state
Member state
Member state
Member state
...
Figure 5: Illustration of the complexity of actors on the EU side
